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					September 6, 2011




INITIATION
Teavana Holdings, Inc. (TEA)
Neutral                                                                                                                              Equity Research

High-growth and high-margin, but valuation full: Initiate at Neutral
Investment view                                                                  Investment Profile
                                                                                 Low                                                                          High
We initiate coverage on Teavana (TEA) with a Neutral rating and 4%
                                                                                 Growth                                                                       Growth
upside to our $25 12-month price target. We like TEA’s fundamentals: it is
                                                                                 Returns *                                                                    Returns *
a high-growth industry leader with a lucrative, differentiated business
                                                                                 Multiple                                                                     Multiple
model in a fragmented, growing market. TEA is in the early stages of its         Volatility                                                                   Volatility
US unit expansion trajectory, with the potential to grow through other                Percentile           20th       40th       60th        80th       100th
                                                                                     Teavana Holdings, Inc. (TEA)
avenues over time. We expect 25%-30% EPS growth over the next 3-5
                                                                                     Americas Retail Peer Group Average
years, driven primarily by unit growth, as well as same-store sales gains
                                                                               * Returns = Return on Capital For a complete description of the
and margin expansion. However, we see valuation as full relative to peers                                    investment profile measures please refer to
                                                                                                             the disclosure section of this document.
at current levels (40X 2012E EPS), and thus wait for a better entry.

                                                                               Key data                                                                            Current
Core drivers of growth                                                         Price ($)                                                                             23.99
We see the potential for sustained 25-30% EPS growth over 3-5 years:           12 month price target ($)                                                             25.00
                                                                               Market cap ($ mn)                                                                     918.8


                                                                               Dividend yield (%)                                                                      0.0
      We expect domestic unit growth at 25-30%/year.                           Net margin (%)                                                                         10.2
     We see mid-single-digit SSS growth near-term, and 3% longer-term;        Debt/total capital (%)                                                                  2.2

      TEA posted only one quarterly SSS decline in the last recession.
     We expect margins to grow from mix shift and fixed cost leverage.        Revenue ($ mn)
                                                                                                                      12/10
                                                                                                                      124.7
                                                                                                                                     12/11E
                                                                                                                                      166.8
                                                                                                                                                    12/12E
                                                                                                                                                     212.1
                                                                                                                                                                    12/13E
                                                                                                                                                                     266.8
     We see several sources of upside over time: (1) E-commerce, (2)          EPS ($)                                 0.36             0.47           0.60            0.78
                                                                               P/E (X)                                 66.2             51.2           40.3            30.7
      International, (3) CPG, (4) More US units, and (5) Capital deployment.   EV/EBITDA (X)                            NM              24.7           19.4            14.8
                                                                               ROE (%)                                 68.5            50.8           40.5            35.6

Risks to the investment case                                                                                            3/11          6/11E           9/11E         12/11E
                                                                               EPS ($)                                  0.10            0.04           0.02            0.32
Upside: better than expected SSS and e-commerce growth. Downside:
earlier-than-expected US saturation, given current entry into smaller          Price performance chart
markets and modest comps relative to unit growth, and macro weakness           29                                                                                      1,500
                                                                               28                                                                                      1,450
                                                                               27                                                                                      1,400
Valuation                                                                      26                                                                                      1,350
TEA is at 40X 2012 EPS vs. projected multi-year EPS growth of 25-30%,          25                                                                                      1,300
the high end of hyper-growth, wellness-oriented retail/restaurant peers.       24                                                                                      1,250
                                                                               23                                                                                      1,200
                                                                               22                                                                                      1,150
Industry context                                                               21                                                                                      1,100
The US tea market is a growing, highly fragmented industry. The industry        Jun-11                      Jul-11                    Aug-11

is $5.6 billion in size and has grown at a 7% CAGR over the past 14 years.
                                                                                                        Teavana Holdings, Inc. (L)        S&P 500 (R)
INVESTMENT LIST MEMBERSHIP
Neutral                                                                        Share price performance (%)                       3 month         6 month 12 month
                                                                               Absolute                                                --              --       --
                                                                               Rel. to S&P 500                                         --              --       --

Coverage View: Neutral                                                         Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 9/02/2011 close.


Michael Kelter                                             Goldman Sachs does and seeks to do business with companies
(212) 934-4252 michael.kelter@gs.com Goldman Sachs & Co.
Matthew J. Fassler
                                                           covered in its research reports. As a result, investors should be
(212) 902-6740 matt.fassler@gs.com Goldman Sachs & Co.     aware that the firm may have a conflict of interest that could
Chris Cerrone                                              affect the objectivity of this report. Investors should consider
(917) 343-5320 chris.cerrone@gs.com Goldman Sachs & Co.
                                                           this report as only a single factor in making their investment
                                                           decision. For Reg AC see the end of the text. For other important
                                                           disclosures, see the Disclosure Appendix, or go to
                                                           www.gs.com/research/hedge.html. Analysts employed by non-
                                                           US affiliates are not registered/qualified as research analysts
                                                           with FINRA in the U.S.
The Goldman Sachs Group, Inc.                                                                                                    Global Investment Research
 September 6, 2011                                                                                                                                  Teavana Holdings, Inc. (TEA)




 Teavana Holdings, Inc.: Summary Financials
Profit model ($ mn)                  12/10     12/11E     12/12E     12/13E      Balance sheet ($ mn)                                 12/10        12/11E     12/12E     12/13E


Total revenue                        124.7      166.8      212.1       266.8     Cash & equivalents                                      7.9         13.4       23.7       37.4
Cost of goods sold                   (50.6)     (65.7)     (74.6)     (92.6)     Accounts receivable                                     0.3          0.3        0.3        0.3
SG&A                                 (50.6)     (70.8)     (99.4)    (124.5)     Inventory                                              16.9         23.9       31.9       40.9
R&D                                       --         --         --          --   Other current assets                                    5.1          5.1        5.1        5.1
Other operating profit/(expense)        0.0        0.0        0.0         0.0    Total current assets                                   30.2         42.7       61.0       83.7
ESO expense                               --         --         --          --   Net PP&E                                               31.0         41.3       50.8       65.4
EBITDA                                 27.9       36.5       45.9       59.3     Net intangibles                                         0.0          0.0        0.0        0.0
Depreciation & amortization           (4.4)      (6.2)      (7.7)       (9.6)    Total investments                                       0.0          0.0        0.0        0.0
EBIT                                   23.5       30.3       38.1       49.7     Other long-term assets                                  2.9          2.9        2.9        2.9
Net interest income/(expense)         (0.4)      (0.3)      (0.2)         0.0    Total assets                                           64.1         86.8      114.7      152.0
Income/(loss) from uncons. subs.        0.0        0.0        0.0         0.0
Others                                  0.0        0.0        0.0         0.0    Accounts payable                                        3.6          3.6        3.6        3.6
Pretax profits                         23.1       30.1       37.9       49.7     Short-term debt                                         1.0          1.0        1.0        1.0
Provision for taxes                   (9.2)     (12.1)     (15.1)     (19.8)     Other current liabilities                              11.7         11.7       11.7       11.7
Minority interest                       0.0        0.0        0.0         0.0    Total current liabilities                              16.3         16.3       16.3       16.3
Net income pre-preferred dividends     13.9       17.9       22.8       29.9     Long-term debt                                          0.0          0.0        0.0        0.0
Preferred dividends                     0.0        0.0        0.0         0.0    Other long-term liabilities                            21.5         26.2       30.0       36.0
Net income (pre-exceptionals)          13.9       17.9       22.8       29.9     Total long-term liabilities                            21.5         26.2       30.0       36.0
Post tax exceptionals                 (1.9)      (0.9)        0.0         0.0    Total liabilities                                      37.8         42.5       46.3       52.3
Net income (post-exceptionals)         12.0       17.1       22.8       29.9
                                                                                 Preferred shares                                        0.0          0.0        0.0        0.0
EPS (basic, pre-except) ($)           0.36       0.47       0.60        0.79     Total common equity                                    26.3         44.3       68.4       99.7
EPS (diluted, pre-except) ($)         0.36       0.47       0.60        0.78     Minority interest                                       0.0          0.0        0.0        0.0
EPS (basic, post-except) ($)          0.32       0.45       0.60        0.79
EPS (diluted, post-except) ($)        0.31       0.45       0.60        0.78     Total liabilities & equity                             64.1         86.8      114.7      152.0
Common dividends paid                  0.0        0.0        0.0         0.0
DPS ($)                               0.00       0.00       0.00        0.00
Dividend payout ratio (%)              0.0        0.0        0.0         0.0     Additional financials                                12/10        12/11E     12/12E     12/13E
                                                                                 Net debt/equity (%)                                  (26.2)        (27.9)     (33.2)     (36.5)
                                                                                 Interest cover (X)                                     52.9        107.6      158.9        NM
Growth & margins (%)                 12/10     12/11E     12/12E     12/13E      Inventory days                                       102.9         113.5      136.6      143.6
Sales growth                          38.2        33.8       27.2       25.7     Receivable days                                         0.8           0.6        0.5        0.4
EBITDA growth                         77.6        31.0       25.7       29.2     BVPS ($)                                               0.69          1.16       1.80       2.62
EBIT growth                           92.6        29.1       25.7       30.2
Net income (pre-except) growth        99.5        29.4       27.1       31.1     ROA (%)                                                26.2         23.8       22.6       22.4
EPS growth                            99.5        29.4       27.1       31.0     CROCI (%)                                              57.4         51.6       48.9       46.3
Gross margin                          59.4        60.6       64.8       65.3
EBITDA margin                         22.3        21.9       21.6       22.2     Dupont ROE (%)                                         52.7         40.5       33.3       30.0
EBIT margin                           18.8        18.2       18.0       18.6     Margin (%)                                             11.1         10.8       10.8       11.2
                                                                                 Turnover (X)                                            1.9          1.9        1.8        1.8
Cash flow statement ($ mn)           12/10     12/11E     12/12E     12/13E      Leverage (X)                                            2.4          2.0        1.7        1.5

Net income                            12.0       17.1       22.8        29.9     Free cash flow per share ($)                           0.18         0.12       0.31       0.36
D&A add-back (incl. ESO)               4.4         6.2        7.7         9.6    Free cash flow yield (%)                               NM            0.5        1.3        1.5
Minority interest add-back             0.0         0.0        0.0         0.0
Net (inc)/dec working capital          0.7       (3.0)      (3.0)       (3.0)    Same store sales % change                                 --            --         --         --
Other operating cash flow              2.3         0.9        1.3         1.4    Number of stores                                          --            --         --         --
Cash flow from operations             19.4       21.1       28.8        37.8     Sales per average store ($ mn)                            --            --         --         --
                                                                                 Square footage (000s)                                     --            --         --         --
Capital expenditures                 (12.6)     (16.4)     (17.2)     (24.2)     Square footage (% change)                                 --            --         --         --
Acquisitions                            0.0        0.0        0.0        0.0     Sales per average sq. foot ($)                            --            --         --         --
Divestitures                            0.0        0.0        0.0        0.0     Rent expense ($ mn)                                  (11.1)        (14.4)     (18.1)     (22.1)
Others                                  0.0        0.0        0.0        0.0     Debt/total capital (incl. leases) (%)                142.7         163.1      190.6      231.1
Cash flow from investing             (12.6)     (16.4)     (17.2)     (24.2)     Debt/total capital (excl. leases) (%)                   3.7           2.2        1.4        1.0
                                                                                 ROC (incl. capitalized ops) (%)                        18.4          18.3       17.0       16.5
Dividends paid (common & pref)          0.0        0.0        0.0        0.0
Inc/(dec) in debt                     (0.3)        0.0        0.0        0.0
Other financing cash flows              0.0        0.8      (1.3)        0.0
Cash flow from financing              (0.3)        0.8      (1.3)        0.0
Total cash flow                         6.6        5.5      10.4        13.7     Note: Last actual year may include reported and estimated data.
                                                                                 Source: Company data, Goldman Sachs Research estimates.




 Analyst Contributors

 Michael Kelter
 michael.kelter@gs.com

 Matthew J. Fassler
 matt.fassler@gs.com

 Chris Cerrone
 chris.cerrone@gs.com


 Goldman Sachs Global Investment Research                                                                                                                                           2
September 6, 2011                                                                                              Teavana Holdings, Inc. (TEA)




Table of Contents

PM Summary: High growth, high margins, but stretched valuation                                                                     3 
Tea is a growing, highly fragmented industry in the United States                                                                  4 
Target for 500 units by 2015 drives 25-30% unit growth                                                                             6 
Consistent same-store sales growth with upside potential                                                                          11 
Highly profitable with room for additional margin expansion                                                                       13 
Five upside options not currently built into our model                                                                            15 
Valuation keeps us on the sidelines                                                                                               17 


                                 The prices in the body of this report are based on the market close of September 2, 2011.




PM Summary: High growth, high margins, but stretched valuation
                                 We initiate coverage on Teavana (TEA) with a Neutral rating and 4% upside to our
                                 $25 12-month price target. We like TEA’s fundamentals: it is a high-growth industry
                                 leader with a lucrative, differentiated business model in a fragmented, growing
                                 market. TEA is in the early stages of its US unit expansion trajectory, with the
                                 potential to grow through other avenues over time. We expect 25%-30% EPS growth
                                 over the next 3-5 years driven primarily by unit growth, as well as same-store sales
                                 gains and margin expansion off current solid levels (GM 63%, EBIT margin 19%). This
                                 said, we see valuation as full at current levels and remain on the sidelines at this time.
                                 Key points:
                                     Core domestic tea market is growing – The US tea market is roughly $5.6 billion in
                                      size and has grown at a 7% CAGR over the past 14 years. US hot tea drunk per capita
                                      rose 40% over that time, from 115 to 160 cups per person per year. The overall market
                                      has more than doubled since 1997, and is expected to continue growing at 6% over the
                                      next 3-5 years.

                                     Teavana is the only specialty tea retailer with national scale – TEA is uniquely
                                      positioned to benefit from this industry growth as the only national retailer with an
                                      exclusive tea focus. TEA has no competitors of scale (179 units vs. 20 for next-largest
                                      competitor), and has used its first-mover advantage to build barriers to future potential
                                      entrants.

                                     Unit growth is the key revenue growth driver – We forecast TEA will grow revenue
                                      at a 25% CAGR in 2011-2015E. The vast majority of growth is to come from unit growth,
                                      consistent with the company’s recent historical growth algorithm. Our proprietary
                                      survey indicates TEA has less than 20% brand awareness in every region of the
                                      country and among all income levels, indicating the potential for a long future growth
                                      ramp. We typically favor unit growth stories with a proven business model and much
                                      room to ramp major metro market expansion; Teavana fits this mode.

                                     Industry-leading gross margin – TEA has the highest GM within the high-growth
                                      retail, restaurant peer group. All of TEA’s major product categories are highly
                                      profitable, and loose leaf tea, its largest category, carries about 70% gross margins. We
                                      forecast TEA will expand margins by 200-300 bp over the next several years as mix
                                      shifts further towards loose leaf tea.




Goldman Sachs Global Investment Research                                                                                                 3
September 6, 2011                                                                                         Teavana Holdings, Inc. (TEA)




                                     Five upside options not in estimates – We see five potential drivers of growth that
                                      are not currently built into our estimates: (1) e-commerce growth, (2) international
                                      expansion, (3) an entry into consumer packaged goods, (4) unit growth above
                                      management’s current target of 500 stores, and (5) capital deployment as the firm
                                      generates free cash.

                                     Valuation keeps us on the sidelines – We initiate at Neutral as the stock is already
                                      trading at a 70% premium to the midpoint of the initial offer range, at 40X our 2012
                                      EPS estimate. This is at the high end of the high-growth peer group, and represents full
                                      valuation, in our view.

                                     Summary of 2Q2011 results – TEA reported 2Q2011 same store sales growth of 6.9%
                                      (ex e-commerce), the opening of 18 new units, revenues of $31.3 million and EPS of
                                      $0.04. 6.9% same store sales growth was in line with the average of the last seven
                                      years and gross margins expanded by 230 bp vs. the YAG period, exceeding our
                                      expectation. Higher SG&A expenses (+110 bp vs. YAG) on ongoing investments and
                                      accelerated store openings limited EPS flow-through.




Tea is a growing, highly fragmented industry in the United States
                                 Domestic tea market is growing – The US tea market is roughly $5.6 billion in size and
                                 has grown at a 7% CAGR over the past 14 years. The market has more than doubled since
                                 1997, and industry experts expect it to continue growing at 6% over the next 3-5 years (see
                                 Exhibit 1).

                                 Hot tea sub-category consumption on the rise – The US tea market is segmented into
                                 two sub-categories: (1) Ready-to-drink tea (e.g., Snapple iced tea), and (2) hot tea (loose
                                 leaf tea, tea bags). Ready-to-drink tea is the larger of the two at $3.6 bn vs. $2 bn for hot tea,
                                 but both are contributing to overall market growth. For hot tea, cups of tea consumed per
                                 capita per year in the United States have risen to roughly 160 cups in 2010, up 41% from
                                 115 cups in 1997 (see Exhibit 2).

                                 A snug fit with burgeoning health and wellness theme – Tea fits well into the healthy
                                 living theme that has been driving growth elsewhere in retail. Lululemon (yoga & exercise),
                                 Vitamin Shoppe (nutrition), and Chipotle (healthy ingredients), among others, are riding
                                 momentum associated with heightened consumer interest in health & wellness as baby
                                 boomers age. Tea is considered by its fans to be a healthier alternative to sugar-based
                                 beverages or coffee, and as such category growth should remain strong.




Goldman Sachs Global Investment Research                                                                                            4
September 6, 2011                                                                                                                                                                                  Teavana Holdings, Inc. (TEA)




Exhibit 1: Domestic tea market is growing                                                         Exhibit 2: US cups per capita are up 41% since 1997
Market size and growth, US tea industry ($ billions)                                              Hot tea cups per capita consumed annually

                        $ 8.0                                                                                                   180
                                                                  CAGR:                                                         170
                        $ 7.0
                                                                   6%




                                                                                                    Cups per capita
                        $ 6.0                                                                                                   160

                        $ 5.0                                                                                                   150
  $ billions




                                           CAGR:
                                                                                                                                140
                        $ 4.0               7%
                                                                                                                                130
                        $ 3.0
                                                                                                                                120
                        $ 2.0
                                                                                                                                110
                        $ 1.0
                                                                                                                                100




                                                                                                                                      1997
                                                                                                                                                1998
                                                                                                                                                       1999
                                                                                                                                                               2000
                                                                                                                                                                        2001
                                                                                                                                                                               2002
                                                                                                                                                                                         2003
                                                                                                                                                                                                2004
                                                                                                                                                                                                       2005
                                                                                                                                                                                                              2006
                                                                                                                                                                                                                     2007
                                                                                                                                                                                                                            2008
                                                                                                                                                                                                                                   2009
                                                                                                                                                                                                                                          2010
                          $-
                                        1997                   2010                 2015E

Source: Euromonitor, Goldman Sachs Research.                                                      Source: Euromonitor, Goldman Sachs Research.




                                                         Tea is under-penetrated in the United States relative to other parts of the world –
                                                         Despite the 41% rise in the amount of tea drunk annually per capita in the United States
                                                         since 1997, American tea consumption is still low relative to the rest of the world (see
                                                         Exhibit 3). There is a significant amount of room for growth as Japanese and Europeans
                                                         still consume more than 3X the amount of tea as Americans. Tea is clearly more embedded
                                                         in the indigenous cultures of some of these countries relative to the United States, but
                                                         there is certainly room for increases.

                                                         Tea is slowly gaining ground on coffee – Hot tea represents only 7.5% of hot beverage
                                                         (coffee + hot tea) consumption in the United States. This has increased from 6.0% in 1997
                                                         as the domestic tea market has grown, but remains substantially below hot tea’s share
                                                         worldwide and in most major regions (see Exhibit 4). For the long term, we believe this
                                                         speaks to the potential under-penetration of tea in the US beverage market.


Exhibit 3: US tea consumption still trails most countries                                         Exhibit 4: US tea consumption very low relative to coffee
Hot tea cups per capita consumed annually                                                         Hot tea as % of coffee + hot tea consumption, volume in tons

                        600     552                                                                                             50%
                                                                                                                                        44%
                                                                                                     Tea as % of coffee + tea




                                           512                                                                                  45%
                        500
      Cups per capita




                                                     451                                                                        40%                           36%
                                                                                                                                35%                                            32%
                        400
                                                                                                                                30%
                        300                                                                                                     25%                                                               22%
                                                                      183                                                       20%
                        200                                                   163
                                                                                                                                15%
                                                                                                                                10%                                                                                  7%
                        100
                                                                                            27                                   5%                                                                                                 2%
                          0                                                                                                      0%
                                                                              USA




                                                                                                                                                                                                                     USA
                                                                                        America




                                                                                                                                                                                                                                   America
                                Japan




                                                                      World




                                                                                                                                             Japan




                                                                                                                                                                                 World
                                                     Western




                                                                                                                                                                                                   Western
                                           Eastern




                                                                                                                                                              Eastern
                                           Europe




                                                                                                                                                              Europe
                                                     Europe




                                                                                                                                                                                                   Europe
                                                                                         Latin




                                                                                                                                                                                                                                    Latin




Source: Euromonitor, Goldman Sachs Research.                                                      Source: Euromonitor, Goldman Sachs Research.

                                                         Teavana is the only national tea retailer – TEA is uniquely positioned to benefit from this
                                                         industry growth as the only national retailer with an exclusive focus on all aspects of tea


Goldman Sachs Global Investment Research                                                                                                                                                                                                         5
September 6, 2011                                                                                                                                                  Teavana Holdings, Inc. (TEA)




                                                             consumption. TEA has no competitors of similar scale (see Exhibit 5). The concept’s retail
                                                             locations strive to create a “Heaven of Tea” experience for consumers, featuring the
                                                             highest-quality teas sourced from around the world and a highly knowledgeable staff.
                                                             Customers can buy everything from tea merchandise (teapots, kettles, brewers, etc.) to 100
                                                             different loose leaf teas and tea blends, all exclusive to Teavana. As the US tea market
                                                             becomes more sophisticated we expect TEA’s customer base will expand.

                                                             Business built around an authentic tea culture. Like many of the most potent emerging
                                                             retail and consumer businesses, Teavana was hatched by an entrepreneur pursuing both a
                                                             passion and a livelihood, rather than by a venture firm looking to monetize a business plan.
                                                             CEO Andy Mack, who opened the first Teavana store in 1997, has structured the
                                                             organization around an obsession with tea, with in-depth training, a placid ambiance (as far
                                                             as can be achieved in a mall), and detailed, informative signage citing both Eastern folklore
                                                             and pragmatic uses for each tea. On white teas, for example: “Delicious source of
                                                             antioxidants; May support healthy skin and complexion; Promotes detoxification and body
                                                             hydration”. And, on Superfruit Unity Green Tea, the company describes how an
                                                             “…alliance of ‘superfruits’ combines sea buckthorn berries, cranberries, raspberries with
                                                             rich rose blossoms, hibiscus blossoms & crisp apple in a delicious green tea marriage…”
                                                             The firm’s fastidious attention to an authentic tea culture inspires customer loyalty, and
                                                             raises barriers to entry versus firms that would seek to mimic the concept without its
                                                             organic origins.

                                                             First-mover advantage creates barrier to entry – TEA has fully capitalized on its first-
                                                             mover advantage by pursuing a national growth strategy from the start (see Exhibit 6).
                                                             TEA’s strategy has been to find the best retail locations regardless of geography, as
                                                             opposed to expanding region by region. The result is that TEA has already established
                                                             itself in the most ideal retail locations nationwide, creating a barrier to new entrants who
                                                             will be forced to compete head-to-head in these locations or settle for second-rate locations.


Exhibit 5: There are no direct competitors of scale                                                                     Exhibit 6: TEA has pursued a nationwide strategy
Total US units as of 2Q11                                                                                               Teavana’s percent of sales by region

                200
                180                                                                                                                     West                             Northeast
                160                                                                                                                                                        24%
                                                                                                                                        25%
 US locations




                140
                120
                100
                 80
                 60
                 40
                 20
                  0
                      Teavana



                                Argo Tea




                                                                                                              Tealuxe
                                                                                   Amanzi Tea



                                                                                                Adagio Teas
                                           Tea Gschwendner



                                                               Lupicia Fresh Tea




                                                                                                                                                                          Southeast
                                                                                                                                      Central                               24%
                                                                                                                                       26%


Source: Company data, Goldman Sachs Research.                                                                           Source: Company data, Goldman Sachs Research.




Target for 500 units by 2015 drives 25-30% unit growth
                                                             Unit growth is the key revenue growth driver – We forecast TEA will grow revenue at a
                                                             25% CAGR in 2011-2015E. The vast majority of this growth is expected to come from unit



Goldman Sachs Global Investment Research                                                                                                                                                     6
September 6, 2011                                                                                                                                                                                           Teavana Holdings, Inc. (TEA)




                                                                      growth (see Exhibit 7), consistent with the company’s recent historical growth algorithm.
                                                                      We expect mid-single digit SSS will account for the remainder of top-line growth.

                                                                      TEA is still in the early stages of domestic unit expansion – TEA has successfully grown
                                                                      from 10 stores in 2003 to 179 by mid-2011. We expect the company to reach 500 units by
                                                                      the end of 2015 (see Exhibit 8), implying an annual unit growth CAGR of 25-30% over that
                                                                      period. From a top-down perspective, TEA currently accounts for only 2% of the domestic
                                                                      tea market, and as such there appears to be room for such aggressive unit growth.


Exhibit 7: Unit growth to be primary driver of growth                                                               Exhibit 8: TEA in the early stages of unit growth
Contribution to revenue growth, SSS vs. unit growth                                                                 TEA store counts

                                   100%                                                                                        600
  Contribution to revenue growth




                                   90%                                                                                                                                                                                                     Forecasts
                                                                                                                               500
                                   80%
                                   70%
                                                                                                                               400
                                   60%




                                                                                                                      Stores
                                   50%                                                                                         300
                                   40%
                                                                                                                               200
                                   30%
                                   20%                                                           SSS                           100
                                   10%                                                           Unit growth
                                    0%                                                                                           0
                                          2007


                                                 2008


                                                        2009


                                                               2010




                                                                                                                                     1997
                                                                                                                                            1998
                                                                                                                                                   1999
                                                                                                                                                          2000
                                                                                                                                                                 2001
                                                                                                                                                                        2002
                                                                                                                                                                               2003
                                                                                                                                                                                      2004
                                                                                                                                                                                             2005
                                                                                                                                                                                                    2006
                                                                                                                                                                                                           2007
                                                                                                                                                                                                                  2008
                                                                                                                                                                                                                         2009
                                                                                                                                                                                                                                2010
                                                                         2011E


                                                                                 2012E


                                                                                         2013E


                                                                                                    2014E


                                                                                                            2015E




                                                                                                                                                                                                                                       2011E
                                                                                                                                                                                                                                               2012E
                                                                                                                                                                                                                                                       2013E
                                                                                                                                                                                                                                                               2014E
                                                                                                                                                                                                                                                                       2015E
Source: Company data, Goldman Sachs Research estimates.                                                             Source: Company data, Goldman Sachs Research estimates.




                                                                      TEA is early in its “adolescence” phase – We see TEA as being early in its growth
                                                                      trajectory, what we call its adolescence phase. This has generally been an ideal time to
                                                                      own consumer/retail growth stocks. We see three primary phases in the typical growth
                                                                      company lifecycle (see Exhibit 9):

                                                                      (1) Adolescence: Domestic white space expansion – Proven concept, underpenetrated in
                                                                      major markets, strong SSS growth, share gains, economies of scale, multiple in excess of
                                                                      EPS growth.

                                                                      (2) Middle Age: Approaching domestic saturation – End of domestic unit growth nears,
                                                                      SSS normalizes, slipping ROIC, multiple contraction as EPS growth rate declines.

                                                                      (3a) Fountain of Youth: Finding a second leg of growth – Domestic business now ex-unit
                                                                      growth, but SSS stable and margins optimized. Company finds new areas of growth
                                                                      generally in international markets or with a second concept.

                                                                      (3b) Getting Old: No new avenues of growth – Domestic SSS declines cause deleverage,
                                                                      units decline as unprofitable locations are closed, few new avenues for growth. Company
                                                                      eventually sold or goes bankrupt.




Goldman Sachs Global Investment Research                                                                                                                                                                                                                                       7
September 6, 2011                                                                                                                                       Teavana Holdings, Inc. (TEA)




Exhibit 9: Teavana is early in its “adolescence” phase, generally a good time to own growth stocks
Diagram of the consumer/retail growth stock lifecycle



                                                                      2. Middle Age:
                                                                        Impending
                                                                                               3a. Fountain of Youth: Renewed
                                                                                               growth in international markets



                                                                    SELL
                                    1. Adolescence:
                                     Domestic white
                                    space expansion
                                                                                                                       BUY


                            BUY                                                                                        SELL
                                                                                   BUY
                                                                                                               3b. Getting old: Declining
                                                                                                                domestic sales, no new
                                                                                                                  markets for growth



Source: Goldman Sachs Research.




                                                      Low brand awareness supports unit growth plans – We have done a proprietary survey
                                                      of 2,000 US consumers that indicates that TEA’s national brand awareness is only 11%
                                                      today, and is less than 20% in all regions (see Exhibit 10). We see this as further evidence
                                                      that TEA has a long runway for future unit expansion, as most potential customers have
                                                      yet to even hear of the chain. Similarly, this survey indicates that TEA has less than 20%
                                                      brand awareness even with high-end consumers, its core consumer base given current
                                                      mall locations and high average ticket (see Exhibit 11).


Exhibit 10: Low brand awareness in every region                                          Exhibit 11: Low brand awareness even amongst its core
Brand awareness by region                                                                high customer
                                                                                         Brand awareness by income level

                      50%                                                                                      50%

                      45%                                                                                      45%

                      40%                                                                                      40%

                      35%                                                                                      35%
    Brand awareness




                                                                                             Brand awareness




                      30%                                                                                      30%

                      25%                                                                                      25%

                      20%                                                                                      20%                                                         19%
                              16%         15%
                      15%                                                                                      15%                                               13%
                                                       10%        10%                                                           10%          10%       11%
                      10%                                                     8%                               10%
                                                                                                                       6%
                      5%                                                                                       5%

                      0%                                                                                       0%
                            Northwest   Southeast   Northeast   Southwest   Midwest                                  <$30k     $30-50k      $50-70k   $70-90k   $90-120k   $120+


Source: GS Brand Survey of 2,000 consumers.                                              Source: GS Brand Survey of 2,000 consumers.




                                                      Attractive unit economics underpin growth – TEA’s store expansion is highly profitable.
                                                      Cash returns on cash invested are 70-75% and the payback period on new units is roughly
                                                      18 months on new stores (see Exhibit 12).

                                                      Consistent economics across geographies and formats – The company has indicated
                                                      that every store ever built, across 35 states and in every region has been profitable with

Goldman Sachs Global Investment Research                                                                                                                                           8
September 6, 2011                                                                                                                         Teavana Holdings, Inc. (TEA)




                                 positive 4 wall contribution margins – including those in “secondary” mall locations. We
                                 believe this highlights the flexibility of the concept and gives us confidence that the
                                 concept can sustain margins and returns as it ventures into the next batch of malls.


                                 Exhibit 12: New store economics are highly attractive
                                 Unit economics of a new store in year one

                                  Average store size (sq. ft)                      900 - 1000
                                  Annual sales                             $ 600,000 - 700,000                Cash on Cash Return                   70-75%
                                  4-Wall contribution                                    25%                  Sales to investment ratio             2.5-3x
                                  Net cash investment                      $ 200,000 - 250,000                Payback period                        12-18 months

                                 Source: Company data, Goldman Sachs Research estimates.




                                 High returns on capital – Cash return on capital invested is particularly strong as the
                                 company replicates this highly profitable economic model rolling out new units. TEA’s
                                 return on capital ranks second only to LULU among high growth retail peers (see Exhibit
                                 13). We see this as evidence that the capital being deployed to new unit growth is capital
                                 well invested.


                                 Exhibit 13: TEA has best-in-class cash returns
                                 2010 cash return on cash invested

                                                              25%



                                                              20%
                                                 2010 CROCI




                                                              15%



                                                              10%



                                                              5%



                                                              0%
                                                                             TEA


                                                                                   UA




                                                                                                                     SBUX
                                                                                                               RUE
                                                                                         CMG


                                                                                                 TFM




                                                                                                                                                    VSI
                                                                                                       URBN




                                                                                                                                   PEET
                                                                                                                            ZUMZ
                                                                    LULU




                                                                                                                                             GMCR




                                 Source: Company data, Goldman Sachs Research estimates.




                                 Earlier-than-expected saturation is the biggest risk – We believe TEA can reach its
                                 target of 500 units by 2015 given the immense amount of white space, and the strength
                                 and flexibility of TEA’s unit economics mentioned above. That said, TEA’s strategy of
                                 building in the best possible locations anywhere in the country first means that many of
                                 their most productive units have already been built. As the concept continues to grow we
                                 expect the company will exhaust “tier 1” retail locations and will be forced to expand in
                                 secondary and possibly tertiary locations. As this would represent unchartered territory,
                                 there is a risk the company could reach saturation earlier than expected, which would be a
                                 problem given the importance of unit growth to TEA’s top-line growth.

                                 We expect lower productivity but also lower costs in secondary markets – As the
                                 concept grows into secondary and tertiary retail locations we expect new store volumes to


Goldman Sachs Global Investment Research                                                                                                                            9
September 6, 2011                                                                                            Teavana Holdings, Inc. (TEA)




                                 decline, and lower the system average down as well (see Exhibit 14). Importantly, however,
                                 we expect the company will maintain unit economics by pairing back fixed costs and
                                 upfront investment associated with these locations.


                                 Exhibit 14: Evolution of unit economics as TEA enters secondary, tertiary markets
                                 Average unit growth, sales/store, sales/new store and new unit productivity

                                                                       2007       2008     2009    2010    2011E     2012E      2013E
                                  Average unit growth                  26%         44%     27%     31%     36%        28%        29%

                                  New store productivity               123%        73%     127%    96%     79%        77%        76%


                                  Sales per store ($mil)               0.891      0.887    0.935   0.982   0.976     0.939       0.917

                                  Sales/store % chg                                0%       5%      5%      -1%       -4%        -2%


                                  Sales per new store ($mil)           1.096      0.650    1.191   0.944   0.769     0.723       0.697

                                  Sales/ new store % chg                          -41%     83%     -21%    -19%       -6%        -4%

                                 Source: Company data, Goldman Sachs Research estimates.




                                 Concept needs to move from niche towards mass market to achieve 500 units – We
                                 believe TEA must begin to transcend above niche retailer status in order to achieve its 500
                                 unit target. Using other retailers as a benchmark, TEA’s system would need to reach a
                                 similar size to Express, Banana Republic, Hollister and Loft (see Exhibit 15).




Goldman Sachs Global Investment Research                                                                                               10
September 6, 2011                                                                                              Teavana Holdings, Inc. (TEA)




                                 Exhibit 15: TEA will have to move from niche towards mass market to achieve 500 units
                                 US units by concept

                                                                               Concept                 Units
                                                                               Gap                     1,152
                                                                               Office Depot            1,147




                                                           Mass market
                                                                               Bed Bath and Beyond     1,139
                                                                               JC Penney               1,106
                                                                               Kohls                   1,089
                                                                               Ross Stores             1,055
                                                                               Old Navy                1,039
                                                                               Victoria Secret         1028
                                                                               Aeropostale              906




                                                           Hybrid Niche/Mass
                                                                               Children's Place         876
                                                                               Chico's                  597
                                                                               Gymboree                 593
                                                                               Express                  591
                                                                               Banana Republic          576
                                                                               Hollister                540
                                                                               LOFT                     502
                                                                               Teavana (2015 Target)    500
                                                                               Abercrombie & Fitch      325
                                                                               Whole Foods              299
                                                                               Ann Taylor               266
                                                                               Godiva                   265
                                                           Niche market




                                                                               Williams‐Sonoma          260
                                                                               Jcrew                    228
                                                                               Pottery Barn             193
                                                                               Crate & Barrel           180
                                                                               L'Occitane               166
                                                                               Teavana (Today)          161
                                                                               Nordstrom (full‐line)    115
                                                                               The Fresh Market         100
                                                                               Tiffany's                 84
                                                                               Lululemon                 78
                                                                               Saks (full‐line)          47

                                 Source: Company data, Goldman Sachs Research.




Consistent same-store sales growth with upside potential
                                 Same-store sales have been consistent – We are modeling for 5.5% SSS in 2011 and 4%
                                 in 2012, versus 6.4% year-to-date an average 6-7% SSS since 2004 (see Exhibit 16). These
                                 forecasts exclude the impact of ecommerce, which is embedded in our non-comp sales
                                 numbers. We see the potential for this forecast to ultimately prove conservative if the
                                 company is able to maintain historical trends. TEA has established a track record of
                                 consistent SSS growth driven by primarily by higher average check as customers graduate
                                 to more sophisticated tea over time.

                                 SSS held up during the recession – TEA SSS held strong through the recession, going
                                 negative only once in 4Q08 when market turbulence was at its worst (see Exhibit 17). Prior
                                 to 4Q2008 results were very robust, averaging 7.4% from 1Q2007 to 3Q2008 when the
                                 economy was in recession. After 4Q2008, results recovered quickly and have maintained
                                 healthy levels up through the present.




Goldman Sachs Global Investment Research                                                                                                11
September 6, 2011                                                                                                                                                                                                                                                          Teavana Holdings, Inc. (TEA)




Exhibit 16: SSS have been very consistent                                                                                                        Exhibit 17: Only one quarter of negative SSS in recession
TEA same-store sales, annual                                                                                                                     TEA same-store sales quarterly (recession shaded)

                                                                                                                                                                                 20%
                        12%                                                                                                                                                                                        Recession
                                                                                                                                                                                 18%
                                                                                                                                                                                                                   SSS
                        10%                                                                                                                                                      16%
    Same‐store sales




                                                                                                                                                                                 14%
                              8%                                                       LT average:




                                                                                                                                                    Same-store sales
                                                                                                                      Conservative                                               12%
                                                                                          6.8%                        assumption?
                                                                                                                                                                                 10%
                              6%                                                                                                                                                                    8%
                                                                                                                                                                                                    6%
                              4%
                                                                                                                                                                                                    4%

                              2%                                                                                                                                                                    2%
                                                                                                                                                                                                    0%
                              0%                                                                                                                                                           -2%
                                             2004

                                                       2005

                                                                2006

                                                                              2007

                                                                                         2008

                                                                                                   2009

                                                                                                              2010

                                                                                                                       2011E

                                                                                                                                      2012E
                                                                                                                                                                                           -4%




                                                                                                                                                                                                          1Q07
                                                                                                                                                                                                                  2Q07
                                                                                                                                                                                                                         3Q07
                                                                                                                                                                                                                                4Q07
                                                                                                                                                                                                                                         1Q08
                                                                                                                                                                                                                                                2Q08
                                                                                                                                                                                                                                                        3Q08
                                                                                                                                                                                                                                                                 4Q08
                                                                                                                                                                                                                                                                        1Q09
                                                                                                                                                                                                                                                                               2Q09
                                                                                                                                                                                                                                                                                            3Q09
                                                                                                                                                                                                                                                                                                   4Q09
                                                                                                                                                                                                                                                                                                          1Q10
                                                                                                                                                                                                                                                                                                                    2Q10
                                                                                                                                                                                                                                                                                                                           3Q10
                                                                                                                                                                                                                                                                                                                                  4Q10
Source: Company data, Goldman Sachs Research estimates.                                                                                          Source: Company data.




                                                                                Peak in US consumer discretionary cash flow a risk to SSS – Goldman Sachs forecasts
                                                                                a derivative shift in savings-rate-adjusted discretionary cash flow in 2H11 and 2012 (the
                                                                                amount US households have left to spend after adjusting for both spending on necessities,
                                                                                including gas and food as well as their projected savings rate). It increasingly appears that
                                                                                1Q11’s 5.4% discretionary cash flow growth rate may have been a near-term peak (see
                                                                                Exhibit 18). This is particularly important given a strong historical tie between this metric
                                                                                and retail SSS across several consumer sectors.

                                                                                But TEA appears to be less tied to the macro than others – TEA SSS are less correlated
                                                                                to macro-economic factors than many of its specialty retail peers (see Exhibit 19). We
                                                                                found an R2 of 0.31 between TEA SSS and savings adjusted discretionary cash flow since
                                                                                1Q2007 when the US economy began to slow. This is notably below competitors such as
                                                                                LTD, ANN and GPS, and well below fellow high-growth retailer LULU.


Exhibit 18: US discretionary cash flow peaked in 1Q11                                                                                            Exhibit 19: TEA has lower correlation to declining
Savings adjusted discretionary cash flow % change                                                                                                discretionary cash flow than other specialty retailers
                                                                                                                                                 R2 of SSS and savings adj discr. cash flow, 1Q2007-present

 12%                                                                                                                                                                                                90%

 10%
                                                                                                                                                                                                    80%
                                                                                                                                                                   R-squared with disc. cash flow




   8%
                                                                                                                                                                                                    70%
   6%

   4%                                                                                                                                                                                               60%

   2%
                                                                                                                                                                                                    50%
   0%

  -2%                                                                                                                                                                                               40%

  -4%
                                                                                                                                                                                                    30%
  -6%
                       1Q98

                               1Q99

                                      1Q00

                                                1Q01

                                                        1Q02

                                                               1Q03

                                                                       1Q04

                                                                                1Q05

                                                                                         1Q06

                                                                                                1Q07

                                                                                                       1Q08

                                                                                                               1Q09

                                                                                                                      1Q10

                                                                                                                               1Q11

                                                                                                                                         1Q12E




                                                                                                                                                                                                    20%
                                                                                                                                                                                                                                                                                                                           TEA
                                                                                                                                                                                                                          ANN




                                                                                                                                                                                                                                                                                      AEO
                                                                                                                                                                                                                                       GPS




                                                                                                                                                                                                                                                                                                   CHS
                                                                                                                                                                                                                 LTD




                                                                                                                                                                                                                                                                        ANF
                                                                                                                                                                                                                                                               TLB




                                                                                                                                                                                                                                                                                                             EXPR
                                                                                                                                                                                                                                                 LULU




Source: Goldman Sachs Research.                                                                                                                  Source: Company data, Goldman Sachs Research.

                                                                                Low visibility on guest count growth another risk – Historically, TEA’s guest count
                                                                                growth has not meaningfully contributed to SSS, and has even gone negative in recent


Goldman Sachs Global Investment Research                                                                                                                                                                                                                                                                                            12
September 6, 2011                                                                                                                           Teavana Holdings, Inc. (TEA)




                                         quarters as the company has deemphasized drinking tea in its stores. Traffic was up 1.8%
                                         in 2Q ex-beverages, but down -3.7% inclusive of beverage transactions in 2Q11 (drinkable
                                         tea is less than 5% of sales but 10-20% of visits). We see this as a concern, as traffic growth
                                         is a key fundamental metric by which to judge the health of any concept. However, we see
                                         the potential for TEA to improve upon this trend by bulking up an almost non-existent
                                         marketing department to drive future traffic. The firm is just building out its CRM capacity,
                                         and best customer metrics and the potential for a loyalty program should enhance its
                                         ability to drive sales growth.




Highly profitable with room for additional margin expansion
                                         Industry-leading gross margins – TEA has the highest gross margins within its high-
                                         growth retail/restaurant peer group (see Exhibit 20). This is due to the fact that all three of
                                         TEA’s major product categories are highly profitable. We estimate profitability to be: tea
                                         blends (72% GM), merchandise (51% GM) and beverages (66% GM) (see Exhibit 21). There
                                         are no “loss leaders” in Teavana’s business model.


Exhibit 20: Industry leading gross margins                                         Exhibit 21: All products are highly profitable
Gross margins, CY2010                                                              Estimated gross margin by product category

 70%                                                                                                          80%



 60%
                                                                                    Estimated gross margins




                                                                                                              70%

 50%
                                                              Average: 42.7%
                                                                                                              60%
 40%



 30%                                                                                                          50%



 20%
         TEA




                             SBUX


                                    UA




                                                 RUE




                                                                      TFM
                                                                VSI
                                          URBN
                      PEET
               LULU




                                                       ZUMZ




                                                                            GMCR




                                                                                                              40%
                                                                                                                    Loose leaf tea   Beverages        Merchandise


Source: Company data, Goldman Sachs Research.                                      Source: Goldman Sachs Research estimates.




                                         Gross margins should improve as stores mature – On a store level basis, gross margins
                                         improve naturally as the product mix in new stores evolve. Lower-margin merchandise
                                         accounts for a larger portion of sales early after a new store opens. As the customer base
                                         migrates from upfront hardware purchases to recurring tea refills mix gradually shifts in
                                         favor of higher-margin tea, which lifts total gross margins (see Exhibit 22).

                                         Maturing store base alone could drive 200 bp of expansion by 2015 – We expect this
                                         mix shift to drive TEA’s gross margins up 200 bp by 2015 as the system as a whole
                                         becomes more mature. Since 2006, tea has increased from 43% to 56% of sales by 2010,
                                         contributing to the 10% improvement in gross margins over that time. While we do not
                                         expect margins to improve at the same rate going forward, we do forecast continued
                                         margin expansion as tea grows to 65% of sales by 2015 (see Exhibits 23-24).




Goldman Sachs Global Investment Research                                                                                                                             13
September 6, 2011                                                                                                                                                                                    Teavana Holdings, Inc. (TEA)




Exhibit 22: Gross margins will rise                                                                                           Exhibit 23: Product mix shifting to tea as system matures
Gross margins vs. % of sales from tea                                                                                         Composition of sales by product

                 70%                                                                                70%                                                   100%
                              Gross margin
                                                                                                                                                          90%
                              % loose leaf tea
                 65%                                                                                                                                      80%




                                                                                                                                Composition of revenues
                                                                                                    60%                                                             51% GM
                                                                                                                                                          70%




                                                                                                          Tea as % of sales
 Gross margins




                 60%                                                                                                                                      60%

                                                                                                    50%                                                   50%

                 55%                                                                                                                                      40%

                                                                                                                                                          30%
                                                                                                                                                                                                                    Beverages
                                                                                                    40%
                 50%                                                                                                                                      20%       72% GM                                          Merchandise
                                                                                                                                                          10%                                                       Loose leaf tea

                 45%                                                                                30%                                                    0%




                                                                                                                                                                 2006


                                                                                                                                                                        2007


                                                                                                                                                                               2008


                                                                                                                                                                                      2009


                                                                                                                                                                                             2010


                                                                                                                                                                                                    2011E


                                                                                                                                                                                                            2012E


                                                                                                                                                                                                                    2013E


                                                                                                                                                                                                                            2014E


                                                                                                                                                                                                                                     2015E
                       2006

                              2007

                                     2008

                                            2009

                                                    2010

                                                            2011E

                                                                    2012E

                                                                            2013E

                                                                                    2014E

                                                                                            2015E




Source: Company data, Goldman Sachs Research estimates.                                                                       Source: Company data, Goldman Sachs Research estimates.


Exhibit 24: We estimate loose leaf tea will increase to 65% of sales by 2015
Sales mix %

                                                   2006             2007                2008          2009                     2010                              2011E         2012E          2013E           2014E            2015E
 Mix by segment
 Loose leaf tea                                    43%              48%                51%            54%                      56%                               58%            59%           61%              63%              65%
 Merchandise                                       51%              47%                44%            42%                      40%                               38%            37%           35%              33%              31%
 Beverages                                          6%               6%                 5%             4%                       4%                                4%             4%            4%               4%               4%
 Total                                             100%             100%               100%           100%                     100%                              100%           100%          100%             100%             100%

Source: Company data, Goldman Sachs Research estimates.




                                                           Modest fixed cost leverage in out-years – We expect limited margin leverage in 2011 and
                                                           2012 as gross margin expansion is offset by various investments to support growth, such
                                                           as a new store support center and expansion of the company’s distribution center. As TEA
                                                           moves beyond these investments we expect operating margins to expand to 19.3% by 2014
                                                           (see Exhibit 25). This modest leverage is explained in part by our conservative out-year
                                                           SSS estimates (see Exhibit 26). There is upside potential to margins if SSS come in better
                                                           than expected and thus generates leverage on fixed costs.




Goldman Sachs Global Investment Research                                                                                                                                                                                                     14
September 6, 2011                                                                                                                                           Teavana Holdings, Inc. (TEA)




Exhibit 25: SG&A leverage will stall near-term as the                     Exhibit 26: We expect limited SG&A leverage in out-years
company invests for future growth                                         given our modest 3% SSS assumption
Operating margins, 2007-2015E                                             SSS vs. Change in SG&A as a % of sales (bps)

 25.0%                                                                                                   400                                                                            10%
                                                  Modest leverage                                                                                              Chg SG&A %
                                                                                                                                                                                        9%
                                                   in out years                                                                                                of sales (bps)
                            Flat margins from




                                                                           Change SG&A % of sales (bp)
                                                                                                         300                                                   SSS                      8%
 20.0%                    investment spending
                                                                                                                                                                                        7%




                                                                                                                                                                                              Same-store sales
                                                                                                         200                                                                            6%

 15.0%                                                                                                                                                                                  5%
             Fixed cost
              leverage                                                                                   100                                                                            4%
                                                                                                                                                                                        3%
 10.0%
                                                                                                           0                                                                            2%
                                                                                                                                                                                        1%
                                                                                                         -100                                                                           0%
  5.0%
                                                                                                                                                                                        -1%
                                                                                                         -200                                                                           -2%




                                                                                                                2007


                                                                                                                       2008


                                                                                                                              2009


                                                                                                                                     2010


                                                                                                                                            2011E


                                                                                                                                                    2012E


                                                                                                                                                                2013E


                                                                                                                                                                        2014E


                                                                                                                                                                                2015E
  0.0%
          2007    2008    2009   2010   2011E   2012E     2013E   2014E


Source: Company data, Goldman Sachs Research estimates.                   Source: Company data, Goldman Sachs Research estimates.




Five upside options not currently built into our model
                                    Five upside options not in estimates – We see five potential upside options that may
                                    meaningfully impact TEA’s financial performance in the future, but that are not currently
                                    built into our estimates:

                                     (1) E-commerce growth – We see e-commerce as a natural extension of TEA’s retail store
                                    model. A robust online presence could increase brand awareness and extend reach to
                                    customers living far from retail stores. E-commerce is also complementary to TEA’s retail
                                    stores as TEA’s online auto-replenish service sends tea refills in pre-set time increments.
                                    This saves the customer a trip to the retail store, and is less expensive for TEA to fulfill.
                                    TEA generated 7% of total sales through its e-commerce business in 2010, +46% from 2009.
                                    E-commerce has grown at a 56% CAGR since 2007 and TEA is targeting it to represent 10%
                                    of sales by 2015 (see Exhibit 27). As e-commerce sales are not reflected in the comp figure,
                                    for TEA this would show up in the form of new store productivity.




Goldman Sachs Global Investment Research                                                                                                                                                      15
September 6, 2011                                                                                      Teavana Holdings, Inc. (TEA)




                                 Exhibit 27: E-commerce could account for $35-40 mn by 2015
                                 E-commerce sales by year

                                                  $45
                                                                                                      10.0%
                                                                                                     of sales
                                                  $40

                                                  $35

                                                  $30

                                                  $25

                                                  $20

                                                  $15
                                                                                7.0% of
                                                                                 sales
                                                  $10        5.8% of
                                                              sales
                                                   $5

                                                   $0
                                                              2008               2010                2015E


                                 Source: Company data, Goldman Sachs Research estimates.




                                 (2) International expansion – TEA has 17 franchised stores in Mexico, and the company
                                 just announced a partner to drive growth in the Middle East. We see the potential for more
                                 international expansion in the future, either company-owned or through franchise
                                 agreements. As discussed previously, US tea consumption is low on a per-capita basis
                                 relative to other countries/regions such as Japan, Europe and Canada. It is not hard to
                                 imagine TEA achieving some level of success in these more robust tea markets, though we
                                 have not factored this into our unit growth assumptions as we believe the company is
                                 likely to focus on US growth in the near term.

                                 (3) Expansion into consumer packaged goods – TEA could leverage its increasing brand
                                 awareness and high-end positioning to expand into consumer packaged goods. Starbucks
                                 has provided a precedent for such a move, eventually selling its premium offerings
                                 through the grocery channel with a high level of success. We expect TEA to continue
                                 selling its products exclusively in its stores and online in the mid-term, but see the
                                 potential for CPG further down the road.

                                 (4) More than 500 units in the United States – Our current model assumes that TEA can
                                 build 500 units in the United States before reaching saturation. We believe the company
                                 may ultimately have potential for more than 500 if the concept has broader appeal than
                                 currently assumed. As discussed above, TEA will need to transcend niche category status
                                 to achieve its 500 unit target. Once a mass market brand, however, it is possible for the
                                 brand to far exceed 500 units.

                                 (5) Capital deployment – Teavana is highly cash-generative, and as such we expect TEA
                                 to generate more cash than it will use for new store expansion. From 2011-2015 we expect
                                 TEA to generate roughly $200 million in cash from operations versus capital expenditures
                                 of only $120 million. As a result, we project TEA’s cash balance will grow to $80-90 million
                                 by 2015, up from $8 million in 2010 (see Exhibit 28). There are a number of possible uses
                                 for this cash that would create additional shareholder value, such as buybacks, dividends
                                 or acquisitions, none of which are currently assumed in our model.




Goldman Sachs Global Investment Research                                                                                        16
September 6, 2011                                                                                                      Teavana Holdings, Inc. (TEA)




                                 Exhibit 28: Currently modeling for TEA to accumulate cash on its balance sheet
                                 Cash at end of period, $ millions

                                                                                  Cash balance growing
                                                            $ 100



                                                             $ 80

                                    Cash at end of period
                                                             $ 60



                                                             $ 40



                                                             $ 20



                                                              $0
                                                                    2006


                                                                           2007


                                                                                  2008


                                                                                         2009


                                                                                                2010


                                                                                                       2011E


                                                                                                               2012E


                                                                                                                       2013E


                                                                                                                               2014E


                                                                                                                                        2015E
                                 Source: Company data, Goldman Sachs Research estimates.




Valuation keeps us on the sidelines

                                 Valuation keeps us on the sidelines
                                 We believe TEA has the potential to grow into a best-in-class retailer with a significant
                                 runway for growth. This said, we initiate at Neutral due to our belief that valuation is full at
                                 these levels. The initial range for the company’s public offering was $13-15, the transaction
                                 was executed at $17 and the stock currently trades at $24 – a full 70% above the midpoint
                                 of the initial range. TEA shares currently at 40X our 2012 EPS estimate, putting TEA at the
                                 high end relative to other hyper-growth, wellness-oriented retail and restaurant peers (see
                                 Exhibits 29-30).

                                 Price target
                                 We introduce a P/E-based 12-month price target of $25, which applies a 1.4X PEG, in line
                                 with its hyper-growth comps, to our 2011-2013 average EPS growth rate of 30%.

                                 This yields a 42X target multiple that, when applied to our 2012 EPS estimate of $0.60,
                                 yields a $25 price target.




Goldman Sachs Global Investment Research                                                                                                        17
September 6, 2011                                                                                                                          Teavana Holdings, Inc. (TEA)




Exhibit 29: TEA trading at high end of peer group                             Exhibit 30: PEG ratio modestly above comp average
P/E multiple, 2012E                                                           P/E relative to growth, 2012

                       45 x                                                                                     1.8 x




                                                                                P/E relative to growth (2012)
                       40 x
                                                                                                                1.6 x
 P/E multiple (2012)




                       35 x

                       30 x
                                                                                                                1.4 x
                       25 x

                       20 x                                                                                     1.2 x

                       15 x
                                                                                                                1.0 x
                       10 x




                                                                                                                               VSI
                                                                                                                        LULU




                                                                                                                                     TEA



                                                                                                                                           Avg ex-




                                                                                                                                                      CMG




                                                                                                                                                                TFM
                                                                   VSI
                              TEA




                                    LULU




                                           CMG




                                                           TFM
                                                  ex-TEA




                                                                                                                                            TEA
                                                   Avg




Source: Factset, Goldman Sachs Research estimates.                            Source: Factset, Goldman Sachs Research estimates.




                                             Risks to our price target and view
                                             Upside
                                             Higher-than-expected same-store sales are the primary upside risk. Higher SSS would both
                                             boost top-line results and generate additional leverage throughout TEA’s P&L. In addition,
                                             any of the upside options described above could result in upside surprises as we do not
                                             currently build any of them into our model.

                                             Downside
                                             The primary downside risk is earlier-than-expected saturation in the United States as unit
                                             growth is the primary driver of TEA’s revenue growth. We currently expect TEA can
                                             achieve 500 domestic units by 2015 before reaching saturation. However, TEA’s strategy of
                                             building in the best locations nationwide from the start and its high average ticket ($46
                                             excluding beverages) may make it difficult to expand into lower tier, less ideal locations.




Goldman Sachs Global Investment Research                                                                                                                              18
                                                                                                                                                                                                                                                               September 6, 2011
Goldman Sachs Global Investment Research




                                           Exhibit 31: TEA annual income statement
                                           All figures in millions (except per-share data)

                                                                                                                                                                                                 % Change                             CAGR
                                                                                     2006     2007     2008     2009     2010     2011E    2012E    2013E    2014E    2007    2008     2009     2010 2011E 2012E 2013E 2014E         2010-15E

                                           SSS Growth                                3.7%     8.4%     3.0%     6.9%     8.7%     5.5%     4.0%     3.0%     3.0%      4.7     -5.4     3.9      1.8    -3.2   -1.5    -1.0   0.0
                                           Unit Growth                               74.1%    25.5%    44.1%    27.1%    30.6%    35.8%    28.3%    29.0%    25.5%

                                           Segment Revenues
                                           Tea                                       14.5     22.7     32.6     48.7      69.8     96.8    125.2    162.7    206.5    56%     44%      50%      43%     39%    29%    30%     27%      30%
                                           Merchandise                               17.2     21.9     28.1     37.9      49.9     63.4     78.5     93.4    108.2    27%     28%      35%      32%     27%    24%    19%     16%      20%
                                           Beverage                                   2.0      2.6      3.2      3.6       5.0      6.7     8.5      10.7     13.1    28%     23%      13%      38%     34%    27%    26%     23%      26%
                                           ---                                        ---      ---      ---      ---       ---      ---      ---      ---      ---     ---     ---      ---      ---     ---    ---    ---     ---
                                           Net sales                                 33.8     47.2     63.9     90.3     124.7    166.8    212.1    266.8    327.8    40%     35%      41%      38%     34%    27%    26%     23%      26%

                                           Cost of sales                             -15.9    -20.0    -27.2    -36.4    -46.3     -59.6    -74.6    -92.6   -112.1    25%    36%      34%      27%     29%    25%    24%     21%      24%
                                           Gross profit                              17.8     27.2     36.7     53.8     78.4     107.3    137.5    174.2    215.7     53%    35%      47%      46%     37%    28%    27%     24%      27%

                                           SG&A                                      -16.5    -22.2    -29.2    -38.1    -50.6    -70.5    -91.7    -114.9   -140.6    35%    32%       30%     33%     39%    30%    25%     22%      27%
                                           D&A                                        -1.5     -2.0     -2.7     -3.5     -4.4     -6.2     -7.7     -9.6     -11.6    34%    32%       31%     25%     41%    25%    24%     21%      26%
                                           EBIT                                      -0.2      3.0      4.8     12.2     23.5     30.6     38.1      49.7     63.4            60%      156%     93%     30%    25%    30%     28%      28%

                                           Interest                                   -0.2     -0.3     -0.6    -0.6     -0.4     -0.28    -0.24    0.00     0.00      48%     68%     13%      -31%    -36%   -15%   -100%
                                           Pre-tax income                             -0.4     2.6      4.2     11.6     23.1     30.3     37.9     49.7     63.4     -744%    59%     176%     100%    32%     25%    31%    28%      28%

                                           Income taxes                                0.2     -1.1     -1.7     -4.6    -9.2     -12.2    -15.1    -19.8    -25.2    -744%    59%     176%     100%    33%    24%    31%     28%      28%
                                           Net income                                 -0.2     1.6      2.5      7.0     13.9     18.1     22.8     29.9     38.2     -744%    59%     176%     100%    30%    26%    31%     28%      28%

                                           Shares - Diluted                           38.3     38.3     38.3     38.3     38.3     38.3     38.3     38.3     38.4     0%      0%       0%       0%     0%     0%      0%     0%       0%

                                           EPS - Diluted                             -0.01    0.04     0.07     0.18     0.36     0.47     0.60     0.78     1.00     -744%   59%      176%     100%    30%    26%    31%     28%      28%
                                           One-time items                             -0.03   -0.03    -0.03    -0.04    -0.05    -0.02

                                           Reported EPS                              -0.04     0.01     0.03     0.14     0.31     0.45     0.60     0.78     1.00    -128%   216%     341%     127%    44%    32%    31%     28%

                                           Tax rate                                  39.8%    39.8%    39.8%    39.8%    39.8%    40.3%    39.8%    39.8%    39.8%     0.0     0.0      0.0      0.0    0.5    -0.5    0.0    0.0

                                           Margins
                                           Gross margin                             52.8%      57.7%   57.4%     59.6%    62.9%   64.3%     64.8%   65.3%     65.8%    4.9     -0.3     2.2     3.3     1.4     0.5    0.5    0.5
                                           SG&A % of sales                          -48.9%    -47.1%   -45.8%   -42.3%   -40.6%   -42.3%   -43.2%   -43.1%   -42.9%    1.8     1.3      3.5     1.7     -1.7   -0.9    0.1    0.2
                                           D&A % of sales                            -4.5%     -4.3%    -4.2%    -3.9%    -3.5%    -3.7%    -3.6%    -3.6%    -3.5%    0.2     0.1      0.3     0.4     -0.2   0.1     0.0    0.0
                                           Operating margin                          -0.5%      6.3%     7.5%    13.5%    18.8%   18.3%    18.0%    18.6%    19.3%     6.8     1.1      6.1     5.3     -0.5   -0.4    0.6    0.7
                                           Net income margin                         -0.7%      3.4%     3.9%     7.7%    11.1%   10.9%     10.8%   11.2%     11.6%    4.1      0.6     3.8     3.4     -0.3   -0.1    0.5    0.4
                                           Capex % of sales                         -15.7%     -7.5%   -13.8%    -7.4%   -10.1%    -9.6%    -8.1%    -9.1%    -8.7%    8.2     -6.3     6.4     -2.7    0.5     1.5    -0.9   0.4

                                           Calcs
                                           EBITDA                                     1.3      5.0      7.4      15.7     27.9     36.8     45.9     59.3     75.0    276%     49%     111%     78%     32%    25%    29%     27%      27%
                                           EBITDA margin                             3.9%     10.6%    11.6%    17.4%    22.3%    22.0%    21.6%    22.2%    22.9%     6.7      1.0     5.7      5.0    -0.3   -0.4    0.6     0.7

                                           Free cash flow                             -2.9     0.2      -3.8     4.4      6.8      8.0      15.6     18.2     24.8     -108% -1703%    -215%    54%     17%    95%    16%     36%      37%




                                                                                                                                                                                                                                                Teavana Holdings, Inc. (TEA)
                                           Free cash flow per share                  -0.08     0.01     -0.10    0.12     0.18     0.21     0.41     0.47     0.65     -108% -1703%    -215%    54%     17%    95%    16%     36%      37%
                                           FCF conversion                           1179%      15%     -153%     64%      49%      44%      68%      61%      65%     -1163.9 -167.6    216.2   -14.4   -5.1   24.3   -7.7     4.2


                                           Source: Company data, Goldman Sachs Research estimates.
19
                                           Exhibit 32: TEA quarterly income statement




                                                                                                                                                                                                                                                                                                                            September 6, 2011
Goldman Sachs Global Investment Research




                                           All figures in $ millions, except EPS

                                                                                    1st Quarter                                               2nd Quarter                                             3rd Quarter                                                  4th Quarter
                                                                    2009    2010    % chg     2011    % chg   2012    % chg   2009    2010     % chg 2011     % chg   2012    % chg   2009    2010    % chg     2011       % chg   2012    % chg   2009    2010    % chg     2011    % chg   2012    % chg

                                           Same-store sales         1.4%    15.7%     14.3    6.0%     -9.7   4.0%     -2.0   5.5%    6.9%     1.4    6.9%     0.0    4.0%     -2.9   10.7%   5.9%      -4.8    5.0%        -0.9   4.0%     -1.0   8.7%    7.5%      -1.2    4.0%     -3.5   4.0%     0.0

                                           Net sales                18.0    25.8     43%      34.9    36%     45.5    30%     17.3    23.0     33%    31.3    36%     39.4    26%     18.7    24.8     32%      33.5       35%     41.7    25%     36.3    51.2     41%      67.1    31%     85.6    28%

                                           Cost of sales            -7.6    -10.0    32%      -12.5   24%     -16.0   28%     -7.4    -9.5     27%    -12.2   29%     -15.1   24%     -8.0    -10.2    27%      -13.1      28%     -16.2   23%     -13.4   -16.6    24%      -21.8   32%     -27.4   26%
                                           Gross profit             10.4    15.8     51%      22.5    43%     29.5    31%     9.8     13.5     38%    19.1    41%     24.2    27%     10.7    14.5     36%      20.3       40%     25.6    26%     22.9    34.6     51%      45.3    31%     58.2    29%

                                           SG&A                     -8.6    -10.8    26%      -14.8   37%     -20.5   39%     -8.6    -10.8    26%    -15.4   42%     -20.1   31%     -9.1    -12.1    33%      -17.4      43%     -21.7   25%     -11.9   -16.8    41%      -23.0   37%     -29.4   28%
                                           D&A                      -0.8     -1.0    21%       -1.3   35%      -1.7   28%     -0.9     -1.1    22%     -1.4   35%      -1.8   24%     -0.9     -1.1    22%       -1.6      45%      -2.0   23%      -0.9    -1.2    34%       -1.8   49%      -2.3   25%
                                           Income from operations   1.1      4.0    275%       6.4    61%      7.3    14%     0.4      1.7    334%     2.3    41%      2.4    1%      0.6      1.3    100%       1.4       8%       1.9    40%     10.1    16.6     64%      20.5    23%     26.5    30%

                                           Interest                 -0.14   -0.08   -43%      -0.1    -25%    -0.1     0%     -0.2    -0.1     -31%   -0.1     2%     -0.1    -46%    -0.2    -0.2     -29%         -0.1   -67%    -0.1    20%     -0.1    -0.1     -31%     -0.1    -33%    -0.1     0%
                                           Pre-tax income            0.9     3.9    324%      6.36    63%     7.3     14%     0.2     1.5     600%    2.2     44%     2.3      3%     0.4     1.1     163%          1.3    18%     1.9     41%     10.0    16.5     65%      20.4    24%     26.5    30%

                                           Income taxes             -0.4    -1.6    324%      -2.5    63%     -2.9    14%     -0.1     -0.6   600%    -0.8    32%     -0.9    13%     -0.2    -0.4    163%          -0.5   21%     -0.7    37%     -4.0    -6.6     65%      -8.3    27%     -10.5   27%
                                           Net income               0.6     2.3     324%      3.83    63%     4.4     14%     0.1      0.9    600%    1.4     52%     1.4     -2%     0.3     0.7     163%          0.8    16%     1.1     43%     6.0     9.9      65%      12.1    22%     15.9    32%

                                           Shares - Basic           39.5    39.5      0%      39.5     0%     36.8    -7%     39.5    39.5     0%     36.8    -7%     36.8     0%     39.5    39.5      0%      36.8       -7%     36.8     0%     39.5    39.5      0%      36.8    -7%     36.8     0%
                                           Shares - Diluted         39.5    39.5      0%      39.5     0%     37.8    -4%     39.5    39.5     0%     37.8    -4%     37.8     0%     39.5    39.5      0%      37.8       -4%     37.8     0%     39.5    39.5      0%      37.8    -4%     37.8     0%

                                           EPS - Basic              0.01    0.06    324%      0.10    63%     0.12    22%      0.00    0.02   600%     0.04   63%     0.04    -2%      0.01    0.02   163%      0.02       24%     0.03    43%     0.15    0.25     65%      0.33    31%     0.43    32%
                                           EPS - Diluted            0.01    0.06    324%      0.10    63%     0.12    19%     0.00    0.02    600%    0.04    59%     0.04    -2%     0.01    0.02    163%      0.02       21%     0.03    43%     0.15    0.25     65%      0.32    27%     0.42    32%
                                           One-time items           -0.01   -0.01             -0.01                           -0.01   -0.01           -0.01                           -0.01   -0.01                                                -0.02   -0.02

                                           Reported EPS             0.01    0.05     672%     0.08    72%     0.12    37%     0.00    0.01    -575%   0.03    89%     0.04    34%     0.00    0.01    -3500%    0.02       142%    0.03    43%     0.13    0.23     77%      0.32    38%     0.42    32%

                                           Tax rate                 40%     40%       0.0     40%      0.0    40%      0.0    40%     40%      0.0    37%      -3.3   40%      3.3    40%     40%       0.0     41%         1.0    40%      -1.0   40%     40%       0.0     41%      1.0    40%      -1.0

                                           Margins
                                           Gross profit              58%     61%      3.2      64%     3.2     65%     0.5     57%     59%     1.9     61%     2.2     62%     0.5     57%     59%      1.6     61%         2.2     61%     0.5    63%     68%        4.5    68%      -0.2    68%     0.5
                                           SG&A % of sales          -48%    -42%      5.7     -42%     -0.3   -45%     -2.8   -50%    -47%     2.6    -49%     -2.0   -51%     -2.0   -49%    -49%      -0.3    -52%        -2.9   -52%     -0.1   -33%    -33%      -0.1    -34%     -1.4   -34%     0.0
                                           D&A % of sales            -4%     -4%      0.7      -4%     0.0     -4%     0.1     -5%     -5%     0.4     -5%     0.1     -5%     0.1     -5%     -4%      0.4      -5%        -0.3    -5%     0.1     -3%     -2%       0.1     -3%     -0.3    -3%     0.1
                                           Operating profit          6%      15%      9.6      18%     2.9     16%     -2.3     2%      7%     5.0      7%     0.3     6%      -1.5     3%      5%      1.7       4%        -1.0     5%     0.5    28%     32%        4.5    30%      -1.9    31%     0.5
                                           Net income margin         3%      9%       6.0      11%     1.8     10%     -1.3     1%      4%     3.3      4%     0.5     4%      -1.0     1%      3%      1.4       2%        -0.4     3%     0.3    17%     19%        2.8    18%      -1.4    19%     0.6

                                           EBITDA                    1.86    4.95    166%     7.73    56%      9.00   16%     1.25     2.71   117%     3.76   39%      4.13   10%     1.55    2.39     54%      2.99       25%     3.91    31%     11.03   17.80    61%     22.27    25%     28.81   29%
                                           EBITDA margin            10.3%   19.2%     8.9    22.1%     2.9    19.8%    -2.3   7.2%    11.8%    4.6    12.0%    0.2    10.5%    -1.5   8.3%    9.7%      1.4     8.9%        -0.7   9.4%     0.4    30.4%   34.8%     4.4    33.2%     -1.6   33.7%    0.5


                                           Source: Company data, Goldman Sachs Research estimates.




                                                                                                                                                                                                                                                                                                             Teavana Holdings, Inc. (TEA)
20
September 6, 2011                                                                                                                              Teavana Holdings, Inc. (TEA)




Exhibit 33: TEA annual cash flow and balance sheet
All figures in millions
                                                                       2006   2007   2008    2009    2010     2011E   2012E   2013E   2014E    2015E
                       Statement of Cash Flows
                       OPERATING ACTIVITIES
                       Net income                                                      1.2    5.3    12.0      17.1    22.8    29.9    38.2     47.9
                       Depreciation & amortization                                     2.7    3.5     4.4      6.2     7.7     9.6     11.6     13.8
                       Financing cost amortization                                     0.2    0.1     0.1
                       Accretion of Series A preferred stock                           1.5    1.8     2.1
                       Share based compensation                                        0.2    0.2     0.2      0.9     1.3     1.4     1.4      1.5
                       Deferred income taxes                                          -0.6    0.5    -0.3
                       Loss on disposal of property and equipment                      0.0    0.0     0.1
                       Working capital                                                -0.2   -0.3     0.7      -3.0    -3.0    -3.0    -3.0     -3.0
                         Accounts receivable                                           0.2   -0.1     0.0
                         Inventory                                                    -1.8   -3.6    -5.3      -7.0    -8.0    -9.0   -10.0    -11.0
                         Prepaid expenses and other assets                            -0.7    0.2    -1.1
                         Prepaid rent                                                 -0.2   -0.3    -0.3
                         Accounts payable                                              0.9   -1.6     0.7
                         Accrued compensation and payroll taxes                        0.2    0.5     0.4
                         Taxes payable                                                -0.2    2.8     0.8
                         Deferred franchise income                                    -0.1    0.0    -0.1
                         Deferred revenue                                              0.2    0.3     0.3
                         Deferred rent                                                 1.1    1.1     3.7      4.0     5.0     6.0     7.0      8.0
                         Other accrued liabilities                                     0.3    0.4     1.7
                       Cash from operations                            2.4    3.8     5.0    11.1    19.4     21.1    28.8    37.8    48.2     60.2

                       INVESTING ACTIVITIES
                           New stores                                                                 -10.9   -11.3   -13.5   -15.8   -18.0    -20.3
                           Existing stores                                                             -0.5    -1.0    -2.0    -2.5    -3.0     -3.5
                           Info tech                                                                   -0.3    -1.4    -1.9    -2.4    -2.9     -3.4
                           Distribution center                                                         -0.1    -0.5    -1.5    -2.0    -2.5     -3.0
                           Store support center                                                        -1.1    -0.3    -1.0    -1.5    -2.0     -2.5
                           Other                                                                       -0.1    -2.0     2.7     0.0    0.0       0.0
                       Purchase of property & equipment                -5.3   -3.5   -8.8    -6.6     -12.6   -16.4   -17.2   -24.2   -28.4    -32.7
                       Cash from investing                             -5.3   -3.5   -8.8    -6.6    -12.6    -16.4   -17.2   -24.2   -28.4    -32.7

                       FINANCING ACTIVITIES
                       Proceeds from revolving credit facility                        50.9   94.0     132.2
                       Payments on revolving credit facility                         -45.7   -98.3   -132.2
                       Payment on vendor loan                                          0.0    0.0      -0.3
                       Payments on term loan                                          -0.6    0.0       0.0
                       Cash paid for financing costs                                  -0.4    0.0       0.0
                       Stock issuance                                                  0.0    0.0       0.0
                       Share buybacks                                                  0.0    0.0       0.0
                       Dividends                                                       0.0    0.0       0.0
                       Paying off preferred stock & other                              0.0    0.0       0.0    0.8     -1.3
                       Cash from financing                             0.9    0.6     4.3    -4.3     -0.3     0.8    -1.3     0.0     0.0      0.0

                       Net change in cash & cash equivalents           -2.0   0.8     0.4    0.1      6.6      5.5    10.4    13.7    19.8     27.5
                       Cash, beginning                                  2.0   0.0     0.8    1.2      1.3      7.9    13.4    23.7    37.4     57.2
                       Cash, ending                                    0.0    0.8     1.2    1.3      7.9     13.4    23.7    37.4    57.2     84.8

                       Balance Sheet:                                  2006   2007   2008    2009    2010     2011E   2012E   2013E   2014E    2015E
                       Assets
                       Cash & cash equivalents                         1.1    0.8     1.2     1.3     7.9     13.4    23.7    37.4     57.2     84.8
                       Accounts receivable                                                    0.3     0.3      0.3     0.3     0.3     0.3      0.3
                       Prepaid expenses & other assets                                        1.0     2.0      2.0     2.0     2.0      2.0      2.0
                       Prepaid rent                                                           1.1     1.4      1.4     1.4     1.4      1.4      1.4
                       Inventory                                       4.9    6.2     8.0    11.6    16.9     23.9    31.9    40.9     50.9     61.9
                       Deferred tax asset, current                                            0.8     1.6      1.6     1.6     1.6     1.6      1.6
                       Total Current Assets                            5.9    6.9     9.1    16.0    30.2     42.7    61.0    83.7    113.5    152.0

                       Capitalized financing costs, net                                       0.2     0.1      0.1      0.1     0.1     0.1     0.1
                       Other assets                                     5.3    5.4    6.8     0.4     0.4      0.4      0.4     0.4     0.4     0.4
                       Property & equipment, net                       11.0   13.2   19.4    22.5    31.0     41.3     50.8    65.4    82.1    101.0
                       Other intangible assets, net                                           0.1     0.0      0.0      0.0     0.0     0.0     0.0
                       Goodwill                                                               2.4     2.4      2.4      2.4     2.4     2.4     2.4
                       Deferred tax asset, non-current                                        0.2     0.0      0.0      0.0     0.0     0.0     0.0
                       Total Assets                                    22.2   25.5   35.4    41.8    64.1     86.8    114.7   152.0   198.6    255.9

                       Liabilities & Shareholder Equity
                       Accounts payable                                                       2.6     3.6      3.6     3.6     3.6     3.6      3.6
                       Accrued compensation & payroll taxes                                   1.8     2.2      2.2     2.2     2.2     2.2      2.2
                       Income taxes payable                                                   4.0     4.8      4.8     4.8     4.8     4.8      4.8
                       Deferred revenue                                                       1.1     1.3      1.3     1.3     1.3     1.3      1.3
                       Note payable                                                           0.3     0.0      0.0     0.0     0.0     0.0      0.0
                       Current portion of LT debt                                             0.0     1.0      1.0     1.0     1.0     1.0      1.0
                       Other accrued liabilities                                              1.6     3.3      3.3     3.3     3.3     3.3      3.3
                       Total Current Liabilities                       0.0    0.0     0.0    11.3    16.3     16.3    16.3    16.3    16.3     16.3

                       Deferred franchise income                                              0.6     0.5      0.5     0.5     0.5     0.5      0.5
                       Deferred tax liability, non-current and other   7.7    9.8    12.0     0.0     0.4      0.4     0.4     0.4     0.4      0.4
                       Deferred rent                                                          3.9     7.5     11.5    16.5    22.5    29.5     37.5
                       Long-term debt                                   1.4    0.9    5.5     1.0     0.0      0.0     0.0     0.0     0.0      0.0
                       Series A preferred stock                         6.3    7.6    9.1    10.8    13.0     13.7    12.5    12.5    12.5     12.5
                       Total long-term liabilities                     15.4   18.2   26.6    16.3    21.5     26.2    30.0    36.0    43.0     51.0
                       Total Liabilities                               15.4   18.2   26.6    27.6    37.8     42.5    46.3    52.3    59.3     67.3

                       Common stock                                    10.1   12.2   15.8    21.9    81.4     81.4    81.4    81.4     81.4     81.4
                       Stockholders deficit                                                   0.0     0.0     17.1    39.9    69.8    108.0    155.8
                       Additional paid-in capital                       0.0    0.0     0.0    0.0     0.0      0.0     0.0     0.0      0.0      0.0
                       Accumulated deficit                             -3.3   -4.8    -7.1   -7.7    -55.1    -54.2   -52.9   -51.5    -50.1    -48.6
                       Total stockholders deficit                      6.8    7.3     8.7    14.2    26.3     44.3    68.4    99.7    139.3    188.7

                       Total Liabilities & shareholder equity          22.2   25.5   35.35   41.8    64.1     86.8    114.7   152.0   198.6    255.9


Source: Company data, Goldman Sachs Research estimates.




Goldman Sachs Global Investment Research                                                                                                                                21
September 6, 2011                                                                                                            Teavana Holdings, Inc. (TEA)



Reg AC
We, Michael Kelter, Matthew J. Fassler and Chris Cerrone, hereby certify that all of the views expressed in this report accurately reflect our personal
views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be,
directly or indirectly, related to the specific recommendations or views expressed in this report.




Investment Profile
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market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites
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yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.




Quantum
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GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list
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Disclosure Appendix

Coverage group(s) of stocks by primary analyst(s)
Michael Kelter: America-Restaurants, America-Toys. Matthew J. Fassler: America-Retail: Specialty Hardlines.
America-Restaurants: Chipotle Mexican Grill, Inc., Dunkin' Brands Group, Inc., McDonald's Corp., Panera Bread Co., Starbucks Corp., Teavana
Holdings, Inc., The Wendy's Company, Tim Hortons Inc., Tim Hortons Inc., Yum! Brands, Inc..
America-Retail: Specialty Hardlines: Advance Auto Parts Inc., AutoZone Inc., Barnes and Noble, Inc., Bed Bath & Beyond, Inc., Best Buy Company,
Inc., CarMax Inc., Copart Inc., CVS Caremark Corp., Dick's Sporting Goods, Ethan Allen Interiors, Inc., GameStop Corp., Genuine Parts Co., GNC
Holdings, Inc., The Home Depot, Inc., KAR Auction Services, Inc., Lowe's Companies, Inc., Lumber Liquidators Holdings, Inc., O'Reilly Automotive,
Inc., Office Depot, OfficeMax Inc., PETsMART, Inc., RadioShack Corp., Rite Aid Corp., Staples, Inc., Tractor Supply Company, Walgreen Company,
Williams-Sonoma, Inc..
America-Toys: Hasbro, Inc., Mattel, Inc..

Company-specific regulatory disclosures
The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies
covered by the Global Investment Research Division of Goldman Sachs and referred to in this research.
Goldman Sachs has received compensation for investment banking services in the past 12 months: Teavana Holdings, Inc. ($23.99)
Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Teavana Holdings, Inc.
($23.99)
Goldman Sachs had an investment banking services client relationship during the past 12 months with: Teavana Holdings, Inc. ($23.99)
Goldman Sachs has managed or co-managed a public or Rule 144A offering in the past 12 months: Teavana Holdings, Inc. ($23.99)

Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global coverage universe

                            Rating Distribution                          Investment Banking Relationships



Goldman Sachs Global Investment Research                                                                                                               22
September 6, 2011                                                                                                           Teavana Holdings, Inc. (TEA)


                    Buy            Hold             Sell                 Buy             Hold            Sell
  Global            32%            54%            14%                   52%          41%             37%
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Goldman Sachs Global Investment Research                                                                                                                 23
September 6, 2011                                                                                                              Teavana Holdings, Inc. (TEA)


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Goldman Sachs Global Investment Research                                                                                                                   24

				
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